Globally, office demand is still on the rise, but market trends differ. There is an East-West divide between countries that have largely returned to pre-Covid-19 office practices and those where hybrid working is much more normalised. This is reflected in office utilisation rates, which measure the share of workers going to the office daily. By March 2023, in the Asia Pacific (APAC), office utilisation was 86%, 61% in EMEA and 48% in the Americas. In the US, 56% of full-time employees (or 70 million people) say their jobs can be done remotely. In Germany, 51% of people work remotely at least one day a week. In the UK, it is 42%. 

US markets, particularly key cities such as San Francisco, New York, and Los Angeles, have significant potential for increased office availability in the future. San Francisco had one of the lowest office availability rates in the US before the pandemic at 9.5%. However, vacancy is now 30%, which reflects a 30-year high in availability. 

Michael McCandless, Corporate Managing Director of Savills San Francisco, said: "Availability rates are nearing 30%, which is an all-time high for San Francisco, above even the highs that followed the 2001 dotcom crash and the 2008 GFC. Coupled with low daily utilisation rates, most office buildings are running at below 30% capacity." 

San Francisco is an established tech hub. However, many tech companies and workers are reassessing their needs. Given present economic headwinds, tech firms are also examining their space and staffing needs, with reports of tech redundancies characterising this shift.  

Conversely, office demand in APAC is on the rise and vacancies are shrinking. Tokyo has one of the lowest vacancy rates at 4%, and Seoul and Ho Chi Minh City average 3%.   

Asia’s expanding economies and slower hybrid adoption are spurring continued office demand. Hybrid working has not experienced the same rise compared to the West because working cultures in Asia still prioritise physical collaboration and interaction.  

Europe sits somewhere in the middle. Vacancy averages 13.7%; while lower than in the US, it has increased in recent months. In Berlin, London and Madrid, demand for high-quality offices persists, so older office stock is more likely to experience increased vacancies.  

Changes to Working 

According to Savills experts, the post-pandemic economic situation, work culture, infrastructure development and demographics have all contributed to a shift in demand for office space across continents.  

Pandemic recovery has varied across the globe. In Asia, South Korea and Southeast Asia have recovered well, while Europe and the United States have had slower returns and faced greater economic challenges.  

Work culture has a significant impact on hybrid absorption. In the United States, houses are larger and can facilitate hybrid and home working. The concept is also familiar, with hybrid and remote working already in place in San Francisco before the pandemic. However, in Europe and Asia, demand is driven by a culture of working in the office and in-person interaction. According to Serge Vayer, Head of Occupier Services, Savills France, most managers in France still believe work can only be done in the office and still like to have their teams in the office. In Asia, according to James MacDonald, Senior Director and Head of Research, Savills China, cultural factors also drive attitudes to office life and hybrid working. In Asia, businesses prize informal training opportunities that face-to-face interaction with experienced colleagues brings. These cultural perceptions of hybrid work then influence office demand.  

Variations in tenant structure also cause differences in office demand. Certain sectors with higher levels of governance like banking struggle with hybrid transitions. For example, active finance and business services sectors in cities like Mumbai, Delhi and Ho Chi Minh City drive demand for offices. These cities are forecast to see the Gross Value Add from their finance and business services sectors increase by 50% or more in the next five years, and employment in these sectors is forecast to increase by more than 10% over the same period.  

Demographics influence the hybrid transition; growing populations, especially an increasing proportion of younger people, are likely to help support office demand in the near to mid-term. Over the next five years, the populations of Mumbai, Shenzhen, and Ho Chi Minh City are forecast to increase by 8% or more.  

According to Hoang Nguyet Minh, Senior Director of Commercial Leasing, Savills Ha Noi, legal and financial consultants support office demand in Ha Noi and many are looking to expand. While ICT companies continue to support demand, demand from start-ups has slowed and some have even terminated their leases early. This has caused fluctuations in occupancy and rent in Ha Noi.  

Minh forecasts that office demand will dip year-on-year in H2/2023. She added, “It is time for tenants to begin considering the office movements of 2024 based on economic recovery expectations. We expected increased occupancy in 2024 with rent for new buildings reaching solid levels.”  

Conclusion  

Savills delivers a comprehensive range of commercial leasing services for office tenants and landlords. Contact Ms Hoang Nguyet Minh for more information.